Monday, October 12, 2009

China Nurtures Futures Markets in Bid to Sway Commodity Prices

Chinese leaders are concerned that their nation's enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.

Government officials say the country is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities. By letting the world know how much its companies and investors think goods are worth, China hopes to be less at the mercy of markets elsewhere.

"It is true we have a long-term goal of increasing our influence in terms of pricing, but to do that we have to create conditions and do it step by step," Jiang Yang, chief futures-industry policy maker and assistant chairman of the China Securities Regulatory Commission, said in an interview. "But as the Westerners say: 'Rome was not built in a day.'"...

...In the early 1990s, China was eager to demonstrate its embrace of market economics and launched stock and commodity-futures trading.

But there wasn't much planning. More than 50 commodity exchanges sprang up, many of them trading primarily lu dou, or green mung beans, a variety that after soaking stretch into crunchy white sprouts.

Mung-bean prices made little difference to China's economy but proved wildly popular with speculators, until a 1995 futures scandal prompted regulators to close all but three exchanges.

Beijing overhauled futures trading after it joined the World Trade Organization in 2001. It fused markets onto the real economy with cotton, soybean, copper and rubber trading, but eschewed the exotic financial derivatives tied to stocks, bonds and currencies that were gaining in popularity in the U.S.

For China, it was also a time of soaring commodity imports -- which fostered suspicion about foreign merchants.>>>MUCH MORE